U.S. Cautions Foreign Companies On Iran Deals

Taken from The New York Times,March 21, 2007
By STEVEN R. WEISMAN

WASHINGTON, March 20 — For all its efforts to apply economic and political pressure on Iran over its nuclear program, the United States has never used a potentially potent tool in its arsenal — penalties on foreign companies that assist Iran in producing oil and natural gas.

That may be about to change. The Bush administration has quietly been warning energy companies, including Shell, Repsol and SKS, the Malaysian oil company, as well as the governments of China, India, Pakistan and Malaysia, that penalties are possible if they pursue energy deals with Iran.

As a result, several huge projects planned for Iran could be vulnerable. These include one possible $10 billion project by Royal Dutch Shell and the Spanish oil company, Repsol YPF, to develop a natural gas field offshore in Iran, and a $20 billion venture by SKS Ventures of Malaysia to produce natural gas in Iran’s Golshan and Ferdows fields.

In recent months, the administration has tried to avoid diplomatic or political controversies as a result of its jawboning. But the potential for sanctions is posing a quandary for the administration by setting up a possible fight with Europe if it proceeds with them or a fight with Congress if it does not.

One factor behind the warnings, administration officials acknowledge, is that the Democratic-controlled Congress appears to be moving quickly to pass a law that would make sanctions mandatory out of concern about Iran’s suspected nuclear arms program and support for terrorism.

“What we’re trying to do is create multiple points of pressure on Iran in both the private and public sector,” said R. Nicholas Burns, the under secretary of state for political affairs. “These companies also need to know that the attitude of Congress on their activities in Iran is hardening.”

But in orchestrating all this pressure on Iran, President Bush and his aides have been careful to avoid any kind of boycott or other threat that might cause oil and gas prices to soar and strangle the economies of the West.

Short of a cutoff, the administration clearly wants to make it harder for Iran to tap into its oil and gas reserves to increase exports in the future. Iran’s energy output has lagged in recent years, and many experts say the country faces the possibility of not having enough oil to export within as little as 10 years.

Last month, the United States ambassador to Spain, Eduardo Aguirre Jr., met with Repsol executives in Madrid to advise them against going forward with a deal to develop Iran’s South Pars field, which contains one of the world’s biggest natural gas deposits. The ambassador was told that the deal was not yet final, according to American and Repsol officials.

“No investment is being made at present,” said a Repsol spokesman in Madrid, who asked not to be identified by name. “There will not be a decision on this until next year.”

The messages to oil companies mark the latest episode in a long campaign of pressure that reached a turning point in December, when the administration won approval of a United Nations Security Council resolution designating 10 Iranian companies and a dozen individuals as off-limits for international financial dealings.

Another resolution designating an additional 15 individuals and 13 Iranian government and business groups, including a leading Iranian bank, could be approved later this week. The administration, using the Security Council list, wants virtually all of the world’s banks and businesses to boycott all of these Iranian entities.

Despite the stepped up American pressure, some Democratic leaders in Congress are complaining that the administration has not gone far enough.

They want Mr. Bush to invoke a statute enacted in 1996 that obliges the United States government to punish any foreign energy company doing business with Iran unless the president waives the sanction on national security grounds.

“This administration has done nothing to punish Iran,” said Representative Tom Lantos, a Democrat of California who is chairman of the House Foreign Affairs Committee. “The method I don’t favor on Iran is to bomb their nuclear facilities. The method I favor is to starve them of resources, which can only be done through sanctions.”

After the bill passed a decade ago, European governments and companies vehemently objected, charging that it amounted to a brazen case of extra-territoriality, the term for one nation imposing its laws on foreign companies and sovereign nations.

At the time, President Bill Clinton, acting to avoid a confrontation with Europe and in part to send a conciliatory message to Iran when moderates seemed to be vying for power, waived the sanctions on several European companies, including Total, the leading French oil concern.

Recalling that precedent, Mr. Lantos said his bill would strip the president of the ability to waive sanctions on Iran on national security grounds. The Bush administration opposes that provision as a weakening of presidential prerogatives in foreign policy.

A spokesman for House Speaker Nancy Pelosi said that she supported Mr. Lantos’s bill. Mr. Lantos says he is confident he can persuade lawmakers to pass his bill with a big enough majority to override a presidential veto.

The existing sanctions law gives Washington the option to choose among several penalties, including denial of government credits to companies that deal with the foreign oil company, denial of export licenses and a ban on United States government procurement or imports from these companies.

Administration officials say the reason no decisions have been made on whether to invoke or waive sanctions is that the energy exploration deals by Shell, Repsol, China, Malaysia, China and Pakistan are all still in an embryonic stage and that it is better to head them off by using persuasion than penalties.

But they also say that the administration does not want to take any action now that would divide the United States from its allies in Europe on Iran, or to provoke China, India and Pakistan, whose support Washington needs for other foreign policy objectives.

A senior European envoy involved in discussions over Iran said that Europeans would be unhappy with American sanctions against private oil companies, but that they also understood the importance of pressing the Tehran government. “As long as we want to avoid a war with Iran, we have to try sanctions,” he said.

The steps being contemplated are part of a web of pressures, American and European officials say, which could be invoked in coming months. These include plans to sanction more Iranian banks, beyond the two that have already been hit by sanctions and barred from obtaining dollars from American banks.

The aim, American officials say, is to prevent Iran from obtaining dollars, the world’s reserve currency, for use in the purchase of goods or services. Iranian leaders have said that American sanctions are forcing them to sell oil for euros or other currencies, even though oil is traded on the international markets in dollars.

In a separate set of actions, American and European officials say that recent pressure on European governments has led several to reduce or to pledge to reduce their government-backed credit guarantees for deals with Iran.

Germany had $6.2 billion in outstanding export credits to Iran as of 2005, according to figures circulating at the United Nations. But Germany reported recently that after cutting back credits by 60 percent in the last two years, it planned further cutbacks this year.

Japan, which had $1.9 billion in credits as of 2005, has also informed the United States that it has granted no medium- or long-term credit insurance since last June and has cut short-term credits. American officials say they have received similar pledges from Italy and France to cut back their export credits.

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Latest news: Total boss quizzed in Iran probe
The boss of French oil giant Total is being questioned by police as part of a probe into alleged corruption in Iran. Total said Christophe de Margerie and two employees were being interviewed about the firm's role in the South Pars natural gas project in Iran. The company said it was "confident" the investigation would not uncover any illegal activities. The inquiry concerns allegations that illegal payments were made to win the gas contract in 1997. Mr de Margerie was also placed under investigation last year over claims he paid bribes to win bids in Iraq.

Between 1995 and 1999 he headed Total's Middle East operations, then became head of exploration and production before taking the role of chief executive. A number of global figures have been caught up in the so-called Iraq oil-for-food scandal. A French judge is investigating claims that Mr de Margerie paid illegal kickbacks to win favours for his company between 1996 and 2002. The oil-for-food scandal damaged the reputation of former UN Secretary General Kofi Annan, who took personal responsibility for failures at the programme last year.